Abstract
This paper assesses Bosnia and Herzegovina’s First Review Under the Stand-By Arrangement and a Request for Waiver of Performance Criteria. Good progress has been made under the program. Economic activity and fiscal consolidation have exceeded expectations, inflation is low, and fiscal and structural reforms proceed apace. GDP is expected to grow 4 percent in 2002, up from the programmed 2¼ percent, reflecting strengthened industrial activity and good harvests, buoyed by booming bank credit to households.
Statement by the IMF Staff Representative December 20, 2002
This statement summarizes developments and data releases since the Staff Report was issued. The information does not alter the staff appraisal.
Political Developments
Following the national elections on October 5, discussion on the formation of new administrations continue. Meanwhile, the caretaker administrations remain in place.
Fiscal Developments
At end-October, borrowing from banks by the Federation municipalities had declined below the end-September and end-December performance criteria ceilings. Bank borrowing by Cantons had also declined, by KM 8 million from end September, bringing it within KM 3 million (less than half of 0.1 percentage point of BiH GDP) of the performance criteria ceilings for September and December,
Entity transfers to the State for November have been completed on schedule.
Ahead of program commitments, the Federation reconstituted an additonal KM 12 million of succession monies in December, bringing total reconstitution for the year to mid-December to KM 27 million (some 0.3 percent of BiH GDP).
Budgets for 2003 which are consistent with program commitments have been approved.
In the Republika Sprska, the newly elected unicameral National Assembly approved a supplementary budget for 2002 on December 2. This allocated the stronger-than-budgeted revenues mainly to social transfers and to facilatie a reduction of bank borrowing by extra budgetary funds to below the end-December performance criteria ceiling. The Assembly approved the 2003 budget on December 9,
In the Federation, no supplementary 2002 budget was necessary. The House of Representatives (first chamber) approved the 2003 budget on December 10. As the House of Peoples (second chamber) will not be formed until next year, the High Representative, Lord Ashdown, imposed on December 16 the approved 2003 budget at the formal request of the House of Representatives.
At the State level, the House of Representatives approved the budget on December 11. The House of Peoples will not convene until next year. Leaders of political parties at the state level have committed in writing to the Managing Director to support passage of the approved budget in the upper house when the upper house is convened.
Economic Developments
Inflation and industrial production for BiH for January-October 2002 were 0.3 percent and 6 percent respectively over the same period the previous year, in line with the projections in the staff report. The outturns for the Entity budgets in October were also consistent with the staff report.
Relations with the International Monetary Fund
The authorities advised on December 17 that they had designated the Central Bank of Bosnia and Herzegovina as the fiscal agent for the Fund.